Once again from AAII we bring you another mini-course on investing, in this case 7 lessons from the best of Wall Street. Take a look and see if it piques your interest in their stock screening service, a 6 month trial included with this lesson. Enjoy the weekend.
From Wall Street’s
Greatest Thinkers
9-21-20
Dear Friend,
Working at AAII, I’m fortunate to have the time and the tools to study and learn from the market’s leading gurus. Of course, not every investor has this luxury. Day jobs, children, grandchildren and the routine craziness of life means lots of people simply cannot spend the time they want analyzing market masters.
That’s why we created the Stock Superstars Report: to distill time-tested approaches and produce a model portfolio and supplementary watchlists that provide individual investors with ideas based on the process that has made guru superstars so successful.
I’ve been working on this portfolio and newsletter for 18 years. In that time, I’ve learned a number of lessons from our four featured investment superstars. I’ll share seven lessons with you today.
These learnings hold true in any market, but I find renewed comfort in such axioms amid the whirlwind of activity we’ve seen in the last six months.
If investing superstars have applied these statements to their investments with remarkable success for decades on end, then they work for me ...
... and they will likely work for you, too.
Working at AAII, I’m fortunate to have the time and the tools to study and learn from the market’s leading gurus. Of course, not every investor has this luxury. Day jobs, children, grandchildren and the routine craziness of life means lots of people simply cannot spend the time they want analyzing market masters.
That’s why we created the Stock Superstars Report: to distill time-tested approaches and produce a model portfolio and supplementary watchlists that provide individual investors with ideas based on the process that has made guru superstars so successful.
I’ve been working on this portfolio and newsletter for 18 years. In that time, I’ve learned a number of lessons from our four featured investment superstars. I’ll share seven lessons with you today.
These learnings hold true in any market, but I find renewed comfort in such axioms amid the whirlwind of activity we’ve seen in the last six months.
If investing superstars have applied these statements to their investments with remarkable success for decades on end, then they work for me ...
... and they will likely work for you, too.
- It’s okay to pay a premium for stocks with good prospects. Yes, we tend toward value investing at the Association and that leaves us with a natural reticence to surging growth stocks. But William O’Neil teaches us that stocks trading within 10% of their 52-week highs aren’t necessarily poised for depreciation. Instead, if their run-up comes from fundamental success, large sales and earnings increases, those gains may well continue.
- Value stocks outperform because positive earnings surprises can lead to a dramatic correction in market perception of a beaten-down stock. Investors have already priced in and expect disappointment, so challenging that can quickly reverse a stock’s trend. Don’t, however, simply buy a stock for a low price-earnings ratio. It must have financial strength and earnings growth. In other words, the company’s fundamentals must belie its valuation.
Start Your 6-Month Trial Now » - There is no single best factor strategy for sustained market outperformance. But research shows that combining several factors into a composite score can help you achieve higher consistent performance.
- Not all earnings are equal. John Neff, longtime market-beating manager of the Vanguard Windsor Fund, argues that earnings growth must be realistic and sustainable over a five-year period. As such, he generally didn’t look for growth of more than 20% since that rate usually could not be sustained. Neff believes that companies growing faster than 7% a year on increasing sales with price-earnings ratios 40% to 60% below the market point to “underappreciated signs of life” and the possibility for outperformance.
- High-yield, “attention-getting” dividends can provide downside protection and future growth. Again turning to Neff, high dividend yields can serve as price protection for low price-earnings stocks because that cash can help offset a falling stock price. He also believes that companies with consistent earnings growth are more apt to continue paying and growing their dividends or shareholder yield by using excess cash for stock repurchases.
- Knowing when to sell is as important as knowing when to buy. Investing gurus have general criteria for cashing out winners or letting losers loose. Many investors struggle with the end game, either getting caught up in riding a rising wave, doubling down on a stock to which they’re emotionally attached or selling in a bear market despite fundamental strength in a company that indicates its survival and eventual turnaround. That’s one of the major advantages of the Stock Superstars Report: codified deletion rules that adhere to superstar guru strategies.
- Investors need to stick to an investment strategy. Letting emotions overwhelm philosophy leads to poor performance and continual frustration. Once investors find working strategies, they should not abandon them for the new “it” investment. Discipline leads to outperformance.
Two themes echo throughout — foundational strength and remaining impervious to emotion.
Regardless of whether you choose to invest in growth stocks or opt for a value approach, companies need to have underlying health and solid financial strength in addition to other qualifying criteria. Too often, investors forgo this seemingly foundational check and buy into a conclusion not supported by the data.
Investors should also be wary of falling prey to their emotions. This cuts in many ways. Avoid getting caught up in the glitz and glam of trending stocks; avoid ditching a stock because of potentially temporary price aberrations. Stay true to your strategy and outline the factors that dictate selection or deletion.
Fortunately, the Stock Superstars Report addresses both concerns. It rigorously screens all considered stocks to vet for underlying financial strength and fundamental company health. And each SSR portfolio has set addition and deletion criteria that take the guesswork out of investing.
To help individual investors learn these guru superstar strategies, Stock Superstar Report subscribers have me as your guide. You’ll get a weekly newsletters update, as well as exclusive access to Ask Me Anything webinars where we can work together on concerns and questions, and talk through what I’ve learned in 18 years studying the pros.
Regardless of whether you choose to invest in growth stocks or opt for a value approach, companies need to have underlying health and solid financial strength in addition to other qualifying criteria. Too often, investors forgo this seemingly foundational check and buy into a conclusion not supported by the data.
Investors should also be wary of falling prey to their emotions. This cuts in many ways. Avoid getting caught up in the glitz and glam of trending stocks; avoid ditching a stock because of potentially temporary price aberrations. Stay true to your strategy and outline the factors that dictate selection or deletion.
Fortunately, the Stock Superstars Report addresses both concerns. It rigorously screens all considered stocks to vet for underlying financial strength and fundamental company health. And each SSR portfolio has set addition and deletion criteria that take the guesswork out of investing.
To help individual investors learn these guru superstar strategies, Stock Superstar Report subscribers have me as your guide. You’ll get a weekly newsletters update, as well as exclusive access to Ask Me Anything webinars where we can work together on concerns and questions, and talk through what I’ve learned in 18 years studying the pros.
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